As ‘nationalization‘ appears to be the U.S. government’s answer to saving the banking industry, the banks themselves are doing all that they can to boost shareholder confidence.

The latest news from Citibank is that they have approached the US government to agree on a new capital injection that would increase their stake in the troubled bank to about 40 per cent but prevent an outright nationalization.

According to this morning’s FT the U.S. government has a strong preference for supporting banks in private markets wherever possible because of the potential international disruption that could ensue if a large global bank fails. But Treasury did not rule out nationalization in all circumstances. The situation is obviously unlike that of Lehman Brothers which the authorities were quite willing to let falter despite international implications.

The move would allow Citigroup to write off some of its existing debt and raise the amount of common stock. While this could translate to happier investors on one hand (because of a larger portion of common stock requirement when details of the new stress test are announced this week), it would also dilute existing Citigroup stockholders significantly.

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Under Troubled Asset Relief Program (TARP) of the U.S. Treasury, Citigroup and Goldman Sachs received $25 billion each and Bank of America received $10 billion in federal bailout funds.  It has been argued that much of the the global economic meltdown was brought on by the country’s largest financial institutions.  In response to the recent bailouts, Harrington Investments, Inc., a socially responsible investment (SRI) advisory firm, announced that they have submitted binding bylaw amendments at Citigroup, Bank of America and Goldman Sachs that would create Board Committees on U.S. Economic Security.

The bylaw states that the board should consider the impact of bank policies on U.S. economic security as part of their fiduciary duty:

U.S. Economic Security’ impacted by bank policy may include, among other things 1) the long term health of the economy of the U.S., 2) the economic well-being of U.S. citizens, as reflected in indicators such as levels of employment, wages, consumer installment debt and home ownership, 3) levels of domestic and foreign control, and holdings of securities and debt, of companies incorporated or headquartered in the U.S. and 4) the extent to which our company holds securities of foreign companies or has employees or representatives holding positions on the boards of directors of foreign companies.

The shareholder statement argues that taxpayer efforts to stabilize the U.S. economic system were precipitated by “years of irresponsible lending and business practices. Unregulated trading in speculative derivatives and a general lack of management and board oversight at major U.S. financial institutions has brought the global economy to the brink of disaster.”

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According to today’s New York Times, “supporters of the bailout proposal had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers.”

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The Principles are:

• Energy efficiency: Encourage clients to invest in efficiency measures, taking into consideration the value of avoided CO2 emissions; encourage regulatory and legislative changes that increase efficiency in electricity consumption including the removal of barriers to investment in cost-effective demand reduction.

• Renewable and low carbon distributed energy technologies: Encourage clients to invest in cost-effective renewables and distributed technologies, taking into consideration the value of avoided CO2 emissions. We will also encourage legislative and regulatory changes that remove barriers to, and promote such investments.

• Conventional and advanced generation: Investing in CO2-emitting fossil fuel generation entails uncertain financial, regulatory and certain environmental liability risks. Encourage regulatory and legislative changes that facilitate carbon capture and storage (CCS) to further reduce emissions.

An attorney for the Natural Resources Defense Council lauded this move in the bank industry’s news release:

Expectations are rising fast for this industry. Global warming is changing the competitive landscape. Clean power is the name of the game today. Conventional coal facilities are already facing intensive scrutiny. We think the serious money is increasingly going to be on clean, efficient solutions.

But as Matt over at Watthead pointed out, these are just guidelines - the banks are certainly not saying they won’t ever finance another old-fashioned coal plant.

Watthead
Citigroup